Common questions about binary options

What are binary options

Binary options are financial instruments that are based on other underlying financial instruments. The underlying financial instrument is usually a stock, a currency pair, a commodity or a index. The market value and movements of the underlying asset will decide the outcome of the binary option.

Are binary options a scam?

No. Binary options are not scam. This is a common misconception. With this said it should be noted that the industry has been plagued by scam brokers from Israel. That is now mostly a thing of the past. It is usually rather easy to distinguish real brokers and scam brokers.

scamIt is however very important to understand what the options are and how they work. Many traders feel scammed when they find out how the options works after having to started trading without really understanding what they are trading. A binary options is offered by the broker. They are the  underwriter of all options and they decide all aspects of the option. The only thing they do not control is the market movements of the underlying asset. There is no stock market or second hand trading for binary options. The only parties involved is the broker and you.

  • The brokers makes money if the option matures outside the money and becomes worthless. (They earn the price you paid for it.)
  • The broker loses money if the option matures in the money and you make a profit.

All binary options are designed to give the broker an edge. To overcome this edge you need to be good at picking options. It is not enough that 50% matures in the money for you to break even. You can overcome this edge by being skilled at picking which options to buy.

Is it possible to make money with binary options?

Yes it is possible to make money with binary options. If you want to be successfully you must be willing to devote the time needed to analyze the market to find good options to buy. It is almost impossible to make money if you only buy options at random and hope to make money. You need to be able to predict options that mature in the money about 60% of the time to make money. Exactly how high success rate you need depends on the broker you choose and the type of option you chose.

I heard that binary options brokers steals your money. Is this true?

binary-optionsMost brokers are honest and will never do this to you. But there has been a few scam brokers on the market that operated out of Israel. They have been known to deny withdrawal and sometimes denying getting checks that have been sent to deposit money. They have also been known to use the scam technique used in the question below. Most of these scam brokers have now been driven out of business.

You can eliminate the risk of getting your money stolen/scammed from you by choosing a regulated broker with a good reputation. The binary options business is mostly honest but it does contain a lot of money which do attract scam artist. This means it is always good to stay alert and avoid brokers that doesn’t seem 100% legit.

My broker offer to trade for my account and promise to make money. Should I let him?

NO. Never let anyone but yourself trade from your account. You should not deposit any more money with this broker and if you still have any money in the account you should try to withdraw it. This is a technique used by scam brokers and the broker will lose all your deposited money if you allow them to trade for you. The broker loses money if you earn money. There is no third party involved. They would never let account managers make money for their client like this.

How to I find an honest broker

The best way to find a good broker is to use a good review website that can tell you which brokers are good and which you should avoid. Never trust review sites that has nothing but good to say about the brokers. These sites are setup to earn money from referral fees and do not care about anything else. A good site will not recommend a bad broker. They will instead guide you towards the best brokers.

You should always chose to register with a regulated broker. A regulated broker has to follow certain rules or they might lose their license. All honest brokers are regulated.

Always avoid brokers based in Israel. They have had a problem with scam brokers that does whatever it takes to make sure that the clients lose all the money they deposit.

How do binary options work?

There are many different types of binary options. They all work slightly differently. This answer is based on how regular classic binary options work. Classic options have to possible outcomes. They mature in the money and you get a large return on your investment or they mature outside the money and your option is completely worthless. It is your job as a trader to try to pick options that matures in the money.

Whether or not a binary option matures in the money is decided by the underlying asset. It is the market value of the underlying asset at the time of maturation that will decide whether the option matures in the money or not. If the value of the underlying asset is above or below a certain value at that time then you will earn money. If it is not you have lost your investment. Whether the option should be above or below a certain value depends on what type of options you purchased.

How do I trade with binary options?

If you want to trade with binary options you need to get an account with a binary options broker. Always chose to use a regulated broker. There is no centralized market for the options. Each broker decide which options they want to offer and which terms that applies to the options. The broker is always the underwriter for the options.

It is very important that you chose a broke that offer binary options based on the financial instruments you want to trade with.

Once you have your account it is very easy to trade options. It works similar to any web shop. Just locate the option you want to buy and click the buy button. You thenh ave to wait and see if the option matures in the money or not.

There are many different ways to decide which options to buy.

Can I sell binary options?

binary options brokerNo, you can not sell a binary options once you bought it. It is not a tradable asset and there is no second hand market where you can sell you option to other traders. Once you bought them they have no market value unless they mature in the money and net you a large profit.

Some brokers allow you to close your positions early but most do not. In these cases the broker will set the price that they offer to buy the option back at. These prices are always calculated to benefit the broker. It is however one way to earn back a part of your investment if you do not think the option is going to mature in the money.

Can I trade binary options in the US?

Yes. There are binary options brokers that are licensed to trade in the US. The best example of this is NADEX.

Are binary options gambling?

It depends on what you mean by gambling and how you trade binary options. The binary options trade is regulated by the finance department in the country that has issued the brokers license. This is usually Cyprus or Malta but some brokers have license from other jurisdictions.

If you just buy binary options at random and hope that you are going to make money then it is gambling. If you on the other hand spend the time necessary to analyze the markets and only buy options that have a high probability to mature in the money then it is a trade that can earn you a lot of money. But it can not be denied that luck always is going to play a role in the trade. But this is true for all trading. You can never know what the future might bring. All you can do is to try to maximize your chances for success. To only invest when the odds of you earning money are very high.